The Budget – a considered view

A Welcome Rethink on ISAs, New Share Option Boosts, and the Unfinished Agenda for UK Investors

Now that the dust has settled on John Healey’s first Budget on 28th October, ShareSoc have produced its more considered view of the implications. By recent standards, the overall fiscal package was relatively measured—raising around £6 billion, compared with some £66 billion across the previous two Budgets—while leaving baseline Capital Gains Tax (CGT) and dividend tax rates untouched.

As an apolitical organisation representing individual shareholders, ShareSoc judges every Budget against a clear benchmark: does it support economic growth and encourage UK citizens to invest in UK shares? Viewed through that lens, this Budget deserves credit for reversing unworkable ISA restrictions and expanding employee share ownership, even as it misses crucial opportunities on ISA simplification and stamp duty.

Sensible Pragmatism on Cash ISAs

The Chancellor deserves praise for listening to industry and investor feedback by abandoning the previously proposed cap on Cash ISA allowances and the associated charge on cash held inside Stocks & Shares ISAs.

While the original proposal was well-intentioned—seeking to nudge cash savers into becoming equity investors—the execution would have created severe unintended consequences. Policing a £12,000 cash limit for under-65s would have required a 22% charge on interest inside Stocks & Shares ISAs, restrictions on money market funds, and a ban on transfers. Cash is not the enemy of investing; active investors regularly hold liquidity between share purchases and rely on cash buffers during market downturns. Abandoning a measure projected to raise just £70 million by 2031 spares savers and platforms vast administrative complexity and preserves confidence in the ISA wrapper.

More ISAs Are Not the Answer: We Need One Simple ISA

Where the government’s stated pro-investment mission still falters is that this Budget adds complexity rather than removing it. From April 2027, tax rates on savings interest outside a wrapper will rise by a further two percentage points across all bands (to 24%, 44%, and 49% above the Personal Savings Allowance). Perversely, because a higher-rate taxpayer will now pay 44% on cash interest compared with 35.75% on dividends and 24% on capital gains, rate-for-rate the tax system mathematically incentivises savers to use their limited £20,000 ISA allowance to shelter cash rather than equities—the exact opposite of what the government wants to achieve.

Simultaneously, the Budget adds new variants to the ISA landscape: a First Time Buyer ISA to replace the Lifetime ISA from April 2029, and promises of a new “Starter ISA” for first-time investors. Added to Cash, Stocks & Shares, Innovative Finance, and Junior ISAs, this creates what PensionBee’s Maike Currie aptly calls an “alphabet soup”.

ShareSoc’s prescription remains straightforward: abolish the boundary between Cash ISAs and Stocks & Shares ISAs. Give UK savers one combined ISA with a single allowance, where capital can migrate frictionlessly between cash savings and equity investments. A cautious saver could build a cash buffer and transition naturally into shares as their confidence grows, without transfer friction or regulatory traps.

Creating New Shareholders: Welcome Reforms to Share Options and Founders’ Relief

One of the most encouraging pro-growth steps in the Budget received far less mainstream press coverage: the expansion of employee share ownership and enterprise incentives from April 2027.

Alongside a new 10% CGT Founders’ Relief on up to £10 million of lifetime gains for qualifying high-growth company founders, the government has significantly upgraded employee share option schemes. The Company Share Option Plan (CSOP) is being rebranded as EMI2, with the individual option limit doubling from £60,000 to £120,000 and the exercise window extending from 10 to 15 years. Crucially, the cap linking EMI and EMI2 is being removed—meaning employees in scaling companies can hold up to £370,000 in tax-advantaged options (£250,000 in EMI plus £120,000 in EMI2)—while administrative red tape around HMRC grant notifications is being stripped away.

Over time, these reforms will significantly expand the number of individual shareholders in the UK and build substantial personal wealth. However, this creates an urgent financial education challenge that ShareSoc is keen to address. Employees rewarded heavily in company shares face acute concentration risk: their salary, bonus, career prospects, and capital wealth are all tied to a single business. We need to welcome these new option-holders into the wider investor community and educate them on the vital importance of diversification—showing them why and how to gradually redeploy single-company windfalls into a broad, balanced portfolio of shares so they do not leave all their eggs in one basket.

Wealth Distribution, Dividends, and the SIPP Inheritance Tax Trap

Looking deeper at UK wealth statistics helps explain what the Treasury is actually targeting with recent tax shifts. HMRC and FCA figures show that almost £1 trillion is now sheltered inside Adult ISAs (£531 billion in Stocks & Shares ISAs and £420 billion in Cash ISAs) alongside over £567 billion in Self-Invested Personal Pensions (SIPPs).

Because individuals can shelter £20,000 a year in an ISA and up to £60,000 in a SIPP completely free of dividend and capital gains taxes, recent increases in dividend tax rates rarely affect investors in their 20s, 30s, or 40s building listed share portfolios. In practice, dividend tax outside wrappers primarily affects two groups: seven-figure investors holding substantial General Investment Accounts (GIAs) after exhausting their tax-free allowances, and entrepreneurs or owner-managers of private limited companies who extract income via dividends rather than salary to mitigate National Insurance.

For investors who have accumulated significant seven-figure assets inside ISAs and SIPPs, the most punitive tax shift is not on dividends, but on pensions. After Jeremy Hunt abolished the Lifetime Allowance—encouraging savers to maximise their pension pots—Rachel Reeves removed the Inheritance Tax (IHT) exemption on unused pension funds from April 2027. For estates exceeding the £325,000 nil-rate band (or £500,000 with the residence allowance), residual SIPP balances now face 40% IHT on death, followed by income tax at the beneficiary’s marginal rate when drawn after age 75—creating an effective double-taxation rate of 64% to 67% (and over 80% where the pension tapers away the residence band above £2 million).

This turns decades of retirement planning on its head. Previously, savers left their SIPP untouched for their heirs and spent their ISA first. Now, the most sensible financial strategy for those with large pension pots is to proactively extract income from their SIPP during retirement—either to fund their lifestyle or to make regular lifetime gifts to family under HMRC’s completely tax-free “normal expenditure out of income” rules.

Stamp Duty: The Remaining Obstacle to Buying British

Finally, ShareSoc is disappointed that the Chancellor missed the chance to abolish the 0.5% stamp duty on UK share purchases. While the government is modernising the plumbing by replacing Stamp Duty and SDRT with a single Securities Transfer Tax in late 2027, retaining the 0.5% headline rate leaves a self-defeating surcharge on British companies.

Stamp duty applies when buying UK-listed shares and investment trusts, yet does not apply when UK investors buy US, European, or global equities, nor open-ended funds. With AIM shares already exempt and newly listed companies granted a three-year holiday, the economic case against the tax is already conceded. If the government truly wants UK savers to back UK growth companies, it should stop taxing them for buying British.

Mark Northway, Policy Director, ShareSoc